3.5.2 Labour Supply

Question 1

What is labour supply?

Answer 1

It’s the number of workers willing and able to work in a particular job or industry for a given wage

Question 2

What shifts the labour supply curve?

Answer 2

• real wage rate on offer in the industry
• overtime
• substitute occupation
• barriers to entry
• entry requirements
• improvements in the occupational mobility of labour
• net migration of labour
• income tax rates

Question 3

Labour supply non wage factors:

Answer 3

• job risks and job security
• career opportunities
• anti-social hours
• strength of vocation
• living and working overseas
• barriers to entry
• net migration of labour

Question 4

What is the W0 called?

Answer 4

• reserved wage rate

Question 5

What is the income effect?

Answer 5

• positive income effect: when higher wage cause people to want to work more hours in order to reach desired income
• negative income effect: target income reached and people may prefer more time spent on leisure

Question 6

What is the substitution effect?

Answer 6

• rise in the real wage increases the opportunity cost of leisure
• therefore higher wages will always cause people to be incentive to work longer hours
• the idea is that higher wages mean workers will give up leisure to do ore hours as the rewards are higher